Willis Towers Watson on the ropes: can it bounce back?

June 24, 2018

Martin Goss: Willis Towers Watson director of investments

Willis Towers Watson is having a rough trot. The firm has lost two big super fund clients within the last eight months and is about to lose a third. It has recently made four people redundant – three in Sydney and one in Melbourne. The bigger question is, though: ‘what is the future for asset consultants’?

Asset consultants do a great service. They have traditionally provided independent advice and original research to funds which handle the retirement savings of millions of members across Australia and New Zealand. Remember, Willis Towers Watson (WTW) was the first consulting firm to assist the Future Fund in its establishment. David Neal, the Future Fund chief executive, actually built WTW’s Australian investment consulting business into what it is today. But what that is today and, more importantly, what it may become tomorrow, are very different scenarios.

The news is that the $8 billion Australian Catholic Superannuation and Retirement Fund (known in the industry as the Sydney Catholics) is in contract negotiations with Frontier Advisors to replace WTW.

In the last year WTW lost Funds SA to JANA Investment Advisers and LUCRF to Frontier. And, in an unrelated move, according to WTW, the four people made redundant at the asset consulting firm include two of its senior Sydney consultants, Dan Simpson and Sean O’Shea. Simpson was the Sydney Catholics’ consultant. Of the others, two were support staff, one based in Sydney and one in Melbourne.

To be fair, WTW, like its bigger competitors in Australia, JANA and Frontier, has a lot of non-super clients. The firm has, for instance, become the advisor to two financial planning groups in recent months. And it is also diversifying its offering in a way which may signal a secular movement. The biggest remaining super fund client is the $7 billion Commonwealth Bank’s Staff Officers Fund. WTW has larger non-super clients, though.

WTW is growing its ‘delegated’ solutions business, which is what its UK and US clients call ‘OCIO’ (Outsourced Chief Investment Officer). It is also engaged in more ‘strategic partnerships’, providing high-level governance advice and research. NSW’s $90 billion government fund, T-Corp, is a client of WTW for that sort of high-level governance advice.

Martin Goss, the director of investments for WTW, admits that the times they are a changing. He strongly disputes, though, that WTW is going to go down the route that, say, Russell Investments in Australia did a few years ago. Russell is no longer an asset consultant here – but still is in New Zealand and elsewhere. It is a multi-manager in Australia.

Goss said last week that WTW’s business in the investment field (it’s overall operations include insurance broking and HR consulting) consisted of about 80-85 per cent in revenues from traditional asset consulting. While OCIO would grow he did not foresee the percentage from traditional consulting dropping any time soon.

The three core offerings from WTW are:

. Traditional investment consulting

. Delegated or specialist solutions (OCIO), and

. Strategic advisory partnerships.

Back in the old days – say, the early 1990s through to the mid 2000s – we had Towers Perrin and Russell Investments (who were Australia’s first two asset consultants), Mercer, Intech (now Morningstar), Watson Wyatt (Willis Towers Watson), Industry Fund Services/Frontier, John A. Nolan and Associates/ JANA, Aon and some smaller specialists. Now, what is possible, is that we will have a duopoly of JANA and Frontier.

Goss disputes this. He admits asset consulting is evolving but, he says, by example, that the three core offerings of WTW are not mutually exclusive. “If you wonder what we’ll be like in five or 10 years’ time, I can see us as a shop that can do multiple things. We now have some clients, with $5 billion or less, that use sleeves of what we can do.”

Russell Investments was a great asset consulting firm. Unarguably the best in the world through the 1980s and 1990s. Now it’s just another fund manager. Sorry, it’s probably better than most. But the industry is worse off for its metamorphosis.

It’s reminiscent of the what the late Mavis Robertson once said, words to the effect: “One of my few regrets is that we screwed down so hard on the administrators. We didn’t allow them enough margin to keep on reinvesting in their systems.” If all the asset consultants become fund managers, maybe the big super funds have only themselves to blame.